Japanese government bond (JGB) futures fell on Friday but recovered most of their early losses after Bank of Japan Governor Toshihiko Fukui failed to give a clear cut signal that interest rates would rise before the end of the year.
Still, the bond market was weighed down as Fukui, speaking at a news conference after the BOJ kept its overnight call rate unchanged at 0.25 percent, indicated that rates remained on an overall rising trend.
Bonds trimmed losses in the evening session after Fukui stuck to his usual upbeat view of the economy, to the relief of traders who had been concerned that he might be more optimistic about the central bank's rate outlook.
"Basically, his comments do not suggest a change in the BOJ's stance to this point," said Takafumi Yamawaki, fixed income strategist at Morgan Stanley.
"This still keeps the door open for a rate rise by the end of December, but some people in the market may have been expecting him to be more hawkish."
The central bank kept unchanged its monthly economic assessment, saying that the economy was expanding moderately and that consumer prices would stick to their rising trend.
New benchmark December futures were down 0.04 point to 134.03 in the evening session, paring losses after tumbling nearly half a point to the day's low of 133.68 in the afternoon following the rollover from the September contract.
A recovery in domestic stock prices had weighed on the market during the afternoon session, as well as a slide in demand to cover short positions following the rollover.
LIMITED LOSSES:
The yield on the benchmark 10-year JGB traded two basis points higher at 1.715 percent but pulled back from the day's high of 1.730 percent. The yield was significantly higher than the six-month low of 1.6 percent touched a week ago.
The two-year yield rose 2.5 percent to 0.695 percent, keeping its distance from 0.615 percent, its lowest level in more than four months hit early last week.